UPDATED: Rise in national minimum wage to £6.50 recommended by Low Pay Commission

The recommendation will offer some relief to retailers after the Chancellor last month mooted an increase to £7. However, the increase from £6.31 would still represent an above-inflation rise of 3% - the first growth in real terms since 2008.

Business secretary Vince Cable will use the recommendation to inform his decision on setting the minimum wage, which George Osborne will reveal in the Budget announcement on March 19.

Retail bosses have warned against a spike in the minimum wage to £7 as it could damage the economic recovery.

James Lancaster, executive chairman of McColl’s, which this week floated on the Stock Exchange, told Retail Week: “For the last few years the increases have all been within reason. An immediate jump to £7 could damage the recovery. We have to make a living and we are not out of the woods yet in terms of the economy.” Half the staff employed by the retailer earn the minimum wage rate.

Former Tesco boss and current B&M Bargains chairman Terry Leahy said this week that the minimum wage was “good” for society but warned against any steep increase. “If you move it too quickly you start to compress wage levels and you can actually lose jobs,” he said.

Peter Aldis, the boss of NBTY Europe which owns Holland & Barrett, said: “The minimum wage has got to be controlled. It puts pressure on differentials [of wage levels within companies]. At the same time there is the debacle around business rates which is also putting pressure on retailers.”

Cormac Tobin, managing director of Lloydspharmacy owner Celesio UK, said a steep rise would limit the retailer’s ability to invest in staff training and development.

“It’s a very simplistic approach,” he said. “The Government is not considering things that many retailers are doing [in addition], such as training and staff development. It’s not just about the money, it is the complete package.”

A British Retail Consortium spokesman said it has urged the Low Pay Commission to adopt a “cautious approach” when setting this year’s increase. “Increases should not exceed long-term average earnings growth,” he said.